Making the Worst of a Bad Situation: A Note on Irexit

Ronald B. Davies, Joseph Francois

Abstract

Relative to the rest of the EU, Ireland is especially vulnerable to the fallout from Brexit, both economically and politically. With increasing frustration over the reaction from Brussels, some are suggesting that an Irish exit from the EU would benefit the nation. A key argument for this is that it would allow for reintegration with the UK, thus reinstating close ties with one of its largest trading partners. Using a structurally estimated general equilibrium model, we estimate that such a move would substantially worsen the impacts of Brexit, with lower-skill and agricultural workers being disproportionately affected. This is due to the fact that while the UK is one of Ireland’s most important trading partners, trade with the rest of the EU is much more important.